by Jean-Louis Gassee
Why did Microsoft pay $8.5B --10 times the company’s revenue -- for a business that has changed hands so many times, never made money, and comes with substantial debt? (Admittedly, the $686M debt number is manageable — for Microsoft).
One eloquent answer comes from Brad Horowitz, a partner at the Andreessen Horowitz venture firm started by Netscape’s founder. Horowitz invokes the network effect: A large number of users attracts more users and so on, in a kind of gravitation well:
And he concludes:
Well, this is a nice encomium to the guys who transformed the venture firm’s $50M investment in Skype a few months ago into a $150M payday. My own venture investor hat is tipped to MM. Andreessen and Horowitz.
But not so much to Steve Ballmer.
Looking at Microsoft’s recent quarterly numbers, we see the continuation of a now old and getting older tradition: losses in the Online Services Division. Only a few weeks ago, TechCrunch wondered: When Will Microsoft’s Internet Bloodbath End? Business Insider provided a vivid illustration for the problem:
In just the past 12 months, Microsoft has lost $2.5B in its Online business. They spend $2 to make $1 in revenue. Buying and “integrating” Skype will make the picture even redder.
So, again, why spend $8.5B on Skype?
Read more:
Why did Microsoft pay $8.5B --10 times the company’s revenue -- for a business that has changed hands so many times, never made money, and comes with substantial debt? (Admittedly, the $686M debt number is manageable — for Microsoft).
One eloquent answer comes from Brad Horowitz, a partner at the Andreessen Horowitz venture firm started by Netscape’s founder. Horowitz invokes the network effect: A large number of users attracts more users and so on, in a kind of gravitation well:
- 500,000 new registered users per day
- 170 million connected users
- 30 million users communicating on the Skype platform concurrently
- 209 billion voice and video minutes in 2010
- 170 million connected users
- 30 million users communicating on the Skype platform concurrently
- 209 billion voice and video minutes in 2010
And he concludes:
Today, I tip my hat to an old rival, Microsoft. By acquiring Skype, Microsoft becomes a much stronger player in mobile and the clear market leader in Internet voice and video communications. More importantly, Microsoft gets a team, ably led by the exceptional Tony Bates, that can compete with anyone.
Well, this is a nice encomium to the guys who transformed the venture firm’s $50M investment in Skype a few months ago into a $150M payday. My own venture investor hat is tipped to MM. Andreessen and Horowitz.
But not so much to Steve Ballmer.
Looking at Microsoft’s recent quarterly numbers, we see the continuation of a now old and getting older tradition: losses in the Online Services Division. Only a few weeks ago, TechCrunch wondered: When Will Microsoft’s Internet Bloodbath End? Business Insider provided a vivid illustration for the problem:
In just the past 12 months, Microsoft has lost $2.5B in its Online business. They spend $2 to make $1 in revenue. Buying and “integrating” Skype will make the picture even redder.
So, again, why spend $8.5B on Skype?
Read more:
